手头订单价值增减百分率

1、Lecturer:Tutor:Student Name:Student ID:Title:Financial Crisis? Dont worry!只要我們齊心合力共渡難關，香港未來必定安定繁榮！OK？香港是我家，前途共我創！Title:Effects and Remedies of Asian Financial Crisis in Hong KongIntroductionThe situation of Hong Kong after Financial Crisis .p. 1Background of Financial Crisis . p.1 - p. 2 Major Effec

2、ts of Financial CrisisEffect on Investment & Labour Market . p. 3Effect on Net Export . p. 4Effect on Inflation and Consumption .p. 5 - p. 6Government Policies to tackle Economic RecessionLarge Infrastructure Project (Disneyland + Cyberport). p. 7 - p. 8Maintaining of the Linked Exchange Rate .

3、p. 8 Development of Technology in Production .p. 8 - p. 9Tax Rebate . p. 9Conclusion expectation on future economyThe outlook of HK economy is still optimistic p.10 p. 1Situation after Financial CrisisIn the past, Hong Kong has been possessing a strong economic performance. From the late 70s to late

4、 90s century, Hong Kong experienced a steady economic growth at 7.5 % rise on average in Gross Domestic Product (GDP) per year. According to the World Bank, HK GDP per capita income adjusted for purchasing power was ranked the fifth among the worlds major economies in 1997. Also, The unemployment ra

5、te was as low as 2.2% on average in 1997. However, after the occurrence of Asian Financial Turmoil in late 1997, HK economy fell into a recession period. The GDP growth rate dropped to negative 5.7% in 1998 and the unemployment rate consistently rises up to 6.27% at the moment. Why the recent econom

6、ic situation is so unfavourable? And what can the government do in face of such economic depression? In order to investigate how the financial crisis leads to such detrimental economic environment and expect the future HK economic condition, the effects of financial crisis and the government policie

7、s in tackling economic recession brought by this crisis will be discussed on the following. Background of Asian Financial CrisisIn fact, Financial Crisis refers to the speculative attack on a countrys currency from a crew of financial investors. They borrow a large amount of local currency over a pe

8、riod of time and then suddenly supply the whole amount of that currency in the local money market. As a result, the local currency depreciates. In Hong Kong, the existence of Linked Exchange Rate is able to help maintain the HK$ value. However, it will bid up the interest rate through the arbitrage

9、(i.e. buy currency in a market with lower price and then sell it in a market with higher price). p. 2The process of arbitrage is illustrated as below. It is noticed that the local banks borrow HK$ to make arbitrage results in higher interest rate for borrowing. Also, the drop in money supply (MS) of

10、 HK$ leads to higher interest rate and reduces money demand (MD) to bring MS = MD. Local Money MarketHK Banks Foreign Exchange FundExchange US$ and HK$ at the linked exchange rate at HK$7.8 = US$1After speculative attack, assume the exchange rate isHK$8 = US$13. Use US$100 to buy HK$800 so gain $20

11、($800-$780)2. Sell HK$780 to get US$1001. Some HK banks make arbitrage. They borrow HK$ from inter-bank market (e.g. HK$780)MS of HK$ â i á (MDâ)S of loanMS1MS2iD2(loan)i D for loan á i áD1(loan)MDQ of LoanQ of MAs observed above, the interest rate (i) will rise after the ar

12、bitrage carried out by HK banks. As i is a major indicator for many people (investors) and it indirectly affects price level, the rise in i has an eminent effect on the economy.Besides, the Linked Exchange rate may also cause trouble for the competitiveness of HK economy.p. 3Indeed, todays unwanted

13、economy situation is largely attributed to the financial crisis. After the occurrence of the financial crisis in late 1997, HK economic performance starts to deteriorate. To measure how the financial crisis affect HK economy, the exogenous factors of the economic component such as consumers taste an

14、d government policies affect investors view are kept constant. The major effects are described below.Effect on Investment & Labour MarketAs the interest rate drastically rises after the financial crisis (even at 300% for overnight HIBOR), the negatively related investment will decrease and furth

15、er reduce labour employment. This can be shown from the below figures and diagram.From the figures beside, it is observed that the investment has been decreased. The manufactures orders-on-hand compared to the year before falls to nearly negative 20% this year. This is explained by the prompt increa

16、se in interest rate crowds out the investment so the investor should bear higher interest cost and responds to it by reducing investment.手頭訂單價值增減百分率行業九九年一月份與九八年一月份比較（修訂數字） 九九年二月份與九八年二月份比較（臨時數字）統計調查包括的所有行業-18-19服裝製品-17-9紡織-19-8電子製品-21-20電機製品-36-42金屬製品-8-57塑膠製品-37-44印刷及出版-3-1The left diagram indicates

17、 that the demand for labour drops (investmentâ). As there is excess supply of labour at the original wage rate, the wage rate will fall to bring the supply of and demand for labour to the balance. As a result, most employees earn less income and more people are unemployed. In economic recession

18、, some firms may downsize or cut labour so this further raises the unemployment rate.Wage S of L D1 for L D2 for L 0 Q of labourp. 4Effect on Net ExportExports are major income for most economy. It is not exceptional for Hong Kong. Though the Linked Exchange Rate leads to stable value of HK$, it rai

19、se the value of HK$ in term of other Asian countries currency being depreciated after the Asian Financial Crisis. Consequently, HK exports become more expensive than those of other Asian countries so Net Exports fall. Overall ExportsFrom the above diagram, the percentage change of exports compared t

20、o the previous year is negative since January of 1998. It is negative 10% on February and the value is $791 billion. It happens surely after the event of financial crisis. Assuming the elasticity demand for HK exports and other Asian countries exports are larger than 1, foreigners will purchase more

21、 exports from other Asian countries in which their currency is depreciated rather than exports from HK where the currency value is fixed. Actually, they can use the same amount of money to buy more products as their currency value rises relatively to that in most Asian countries except Hong Kong. As

22、 a result, HK exports fall.(It is also meaningful to look into the tourism. Presently, tourists can buy more products or pay lower travel expense in other Asian countries so they choose not come to HK. This will reduce HK intangible exports of services too. p. 5Effect on Inflation and ConsumptionAft

23、er the financial crisis, it is remarked that the price level and consumption falls successively. This greatly dampen the economic growth as it reflects the decreasing aggregate demand for consumer goods and the continuous deflation cause people expect there is likely a permanent falling price so con

24、sume less at the present. This will further reduce investors incentive to invest in production of consumer goods and the economy is hard to recover.The diagram shows the negative % change in CPI compared to a year before since late 1998.The diagram reveals the falling retail value index since the de

25、arly 1998.JThe decrease in consumption reflected in drop of retail value index is caused by two factors. For one thing, investment and employment falls during economic depression and this curtails income earned by most employees and profits earned by employers which in turn reduce their demand for c

26、onsumption goods, esp. for non-necessity goods.p. 6Effect on Inflation and ConsumptionJ For another factor, as described above, people observe the continuous deflation to be lasting so they save up money to enjoy future consumption with lower price. Hence, the retail value index is falling and it fa

27、lls by negative 21% on January this year compared to one year before. Peoples incentives to consume are very weak. J There are three factors contribute to negative inflation rate. Firstly, the HK$ value in term of currency in other Asian countries appreciates and thus the input production cost is lo

28、wer. Also, the premise owner charges lower rent to the manufacturer during this recession period so that manufacturer could lower the selling price of consumer goods.PAD1AD2ASOutput0J Secondly, the decrease of consumption and investment in arecession reduces the aggregate demand (AD) for consumer go

29、ods so the output level and the price level falls. Price willcontinue to drop if consumers perceive it as a permanent deflation and remain reducing demand for the goods.0MDMS1MS2Q of money(low)(low)P$valueJ Lastly, deflation is due to monetary force. ForeignExchange Fund absorbs HK$ from arbitrage i

30、n speculative attack on HK$. In short run, Output is fixed so fall in money supply (MS) of HK$ reduce price level only and HK$ appreciates.J By combing three factors, the Composite CPI is falling and beyond the historical rate at negative 2.6% on March this year. This brings adverse effects on consu

31、mption.To sum up, Financial Crisis leads to the drop in investment which in turn increases unemployment, appreciation of HK$ relatively which crowds out exports, and drop in aggregate demand as well as higher interest rate which results in lower consumption and deflation.p.7In face of economic reces

32、sion, HK government carries out some policies to stimulate economic growth. Such policies indeed focus on the investment, unemployment, exports, consumption and deflation affected by financial crisis. Therefore, we can regard the recent government policies as measures to deal with effects of the fin

33、ancial crisis.Large Infrastructure Project (Disneyland + Cyberport)In Chief Executives 1998 Policy Address and 1999 Financial Budget Report, HK Government also aims to carry out large infrastructure projects in order to alleviate the unemployment problem and facilitate the economic growth. Disneylan

34、d and Cyberport are the two major and attractive projects at the moment.hGovernment and Private Corporation will invest totally $13 billion to build Cyberport at Pok Fu Lam. This can provide large capacity for more than one hundred smallmeddlesize companies. The construction projects are able to pro

35、vide 4,000 job opportunities to the construction sector. After the completion of project, it can provide about 12,000 job positions such as officers, machine operators, technical supporters, maintenance workers, etc. Therefore, This is capable of reducing unemployment rate. Besides, Cyberport is a p

36、lace with high technological facilities and well-developed communication channel. This leads Hong Kong to be the Asia internet interchange centre and promotes the electronic trade. Moreover, this can further attract foreign investment in Hong Kong. At the moment, Intel, IBM and Yahoo such large comp

37、anies also pay interest to invest in Cyberport. In the future, Cyberport is vital to Hong Kongs investment and employment. p. 8hRecently, government is negotiating to build Theme Park Disneyland in Hong Kong. In fact, this is helpful to Hong Kong economy. For the project itself, this can provide job

38、 opportunities to construction workers. Also, This can further provide about 2000 to 3000 job positions to sales, cleaning workers, machine operators, maintenance workers, etc. Apart from them, Disneyland can attract tourists over the world. It is expected that Disneyland not only stimulates the tou

39、rism but also facilitates economic growth in Hong Kong including retailing, hotel renting and the property market nearby. Hence, it is beneficial to HK economy if the operation and franchise cost is not too high. Maintaining of the Linked Exchange RateAlthough the Linked Exchange Rate cause HK$ appr

40、eciates relatively, it is important to most investors. As investors will be more confident to invest if HK$ value will not depreciate so their profits in term of real purchasing power will not decrease.hHK Government indeed proclaims many times that the Linked Exchange Rate will not be abandoned. Go

41、vernment now is using the Real Time Gross Settlement (RTGS) in which all banks should set up account in HK Monetary Authority (HKMA) and Liquidity Adjustment Facility (LAF) in which HKMA lend or borrow money in the interbank loan market. These measures are able to check the loan market activities an

42、d adjust the loan market interest rate so that speculative attacks in HK$ can be easily checked and market interest rate can be stabilized. Then, investors are confident to invest.Development of Technology in ProductionIn the 90s, HK high economic growth is indeed caused by high land price, high inf

43、lation and high wage, which is so-called “bubble economy”. There is low real output level to earn income from abroad. Therefore, compared to Singapore and Taiwan where their output level are high, HK suffer more from financial crisis so it is necessary for HK to focus on output.p. 9hGovernment start

44、s to focus more on technology improvement in production. As said by Tung Kin Wah in his 1998 Policy Address, “We allocate $180 million annually to the Hong Kong Productivity Council which provides technical advice to industry. We have established the Hong Kong Industrial Technology Centre to provide

45、 services and support to industry to enhance technological development at a cost of $250 million. In addition, we will build the first phase of the new Science Park in Tai Po, due to open in 2001, at a cost of $3.3 billion. This will enhance our technological infrastructure. Set up a HK$5 billion In

46、novation and Technology Fund to provide finance for projects which will contribute to the improved use of innovation and technology in our industrial and commercial sectors”. Since HK labour cost is higher than that in most Asian countries so less competitive, turning to technological products will

47、improve our product quality and raise our competitiveness. In the meantime, Government already enforce Information Technology (IT) Strategy in Education which propose to use IT teaching for 1/4 of the course curriculum to bring up technological talents to HK industry. Thus, it is predicted that HK i

48、ndustry will gradually enter the Information Technology Age.Tax RebateRecently, HK peoples incentives to consume are very weak. This may drag the recovery from the depression. To stimulate consumption, tax rebate which return some of the tax payment to the tax payers is one of the efficient measures

49、.hIn 1999 Financial Budget Report, it is published that tax-payers will receive 10% of tax rebate according to their tax payment. The total amount of tax rebate is estimated to $8.5 billion. This temporary increase in peoples income will increase their demand for consumption. Though generally, peopl

50、e may only used 20% to 30% of this temporary income for consumption, it is still beneficial for Hong Kong. Increase in AD will bid up general price level so deflation stops. Expectation on future HK economy become optimistic, investment will increase so tax rebate can stimulate economic development. p.10As we can see, Government enforces budget deficit policy to develop HK economy in this recession period (e.g. $36billion in 1999 2000). It is capa